June Budget 2010 Highlights for individuals and SME Business Owners
We have been complimented on the updates posted on Twitter live during the Budget and hope to continue this by summarising the main points of interest to small business owners and individuals in the street.
The Chancellor George Osborne started by painting the picture of the poor state of the economy and among various political comments stated that due a cautious approach fiscal goals would be met one year earlier than expected in 2014. The inflation target will remain at 2% which has already been exceeded, this will peak at 2.7% later in the year and then reduce. In terms of the approach to the deficit a lower spending rather than higher tax route is being taken, supporting the stand taken by the IMF and OECD, which will be done in the ratio 80/20, clearly showing the public sector will suffer. The relationship with Europe will continue with a commitment not to join the Euro, and the government group looking at this area will be disbanded and used for more “useful tasks.”
Turning to the actual decisions, cuts are to be made to existing budgets but there was a commitment to capital spending, particularly if there is economic benefit. This will be greeted with some optimism by the schools and infrastructure in North Kent which was rumoured to be cut to reduce the deficit. The Royal Family have accepted that the Civil List will be frozen , and will be subject to annual National Audit Office reviews. There will be an overall reduction of 20% in departmental budgets but due to commitments to maintain or increase NHS funding and overseas support the actual effect on departments hit by the cuts will be that of a 25% cut. We will not know the full impact of the cuts until the Spending Review for which the date has been released for the first time as Wednesday 20th October.
The public sector will face the biggest cuts and the most noticeable to the man in the street is the 2 year pay freeze for staff paid over £21k. The government wants to encourage the back to work culture and the tax credits system is being used to facilitate this. Tax credits will be more targeted particularly at the lower paid and will reduce for families with a combined income over £40k. Child benefit is also to be frozen, the government acknowledging a number of approaches including means testing and taxing the benefit but finally settling on a freeze. In other areas medical tests are to be introduced for those claiming disability benefit.
For business the main corporation tax rate will reduce by 1% per annum for the next 4 years reducing from 28% to 24% over that time, which will be the lowest rate in the G20. For small businesses the rate will reduce by 1% only to 20% from next year. There is also to be a small reduction in the rates of capital allowances, of main interest to small businesses the Annual Investment Allowance will reduce from £50k to £25k, which will still meet the needs of many SME businesses.
Among the miscellaneous changes, the Chancellor is introducing a levy on banks as recommended by the IMF, and this will take the form of a tax based of the size of the bank, small banks will be excluded from this arrangement. The landline duty to fund broadband expansion is being withdrawn before even being introduced, this will be funded by links with the private sector and local initiatives. In order to encourage business growth outside London and the South East there will be an NI exemption for new businesses being set up.
The biggest news of the budget and not entirely unexpected was the increase in VAT from 17.5% to 20% from 4 January 2011, but exempt and zero rated items such as childrens clothing and food will be unaffected.
There will be no increases in the previously announced duties for alcohol/fuel etc, but the additional cider increase has been withdrawn from the end of the month (apparently in time for the final 8 in the World Cup!)
In personal tax capital gains tax will remain at 18% for basic rate taxpayers but increase to 28% for higher rate taxpayers, the £10,100 limit will remain. This may appear good at first sight but gains on property for example may well push basic rate taxpayers over the threshold so will pay 28% anyway. To continue to encourage entrepreneurship the limit for lifetime gains will be increased to £5m at which an effective 10% rate applies.
Personal tax allowances will increase by £1000 to £7475 from next year, one step towards the £10k limit proposed by the Lib Dems. The NI thresholds are to be increased and the cost to employers of employing staff paid less than £20k will not increase. For pensioners the basic state pension will be relinked with earnings after a gap of several years, and in a further attempt to support low income families the Child element of Child tax credits will increase by £150pa.
This is by its nature a summary of the main points we consider of interest to readers, there was alot more content in the whole speech but we hope this will be more easily understood. The main announcements are on HMRC website http://www.hmrc.gov.uk/budget2010/index.htm . We hope this will be informative but if you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting – Accountants who “speak your language”
